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How much should I be saving for college?

With college costs increasing at twice the rate of inflation, it is important to start saving early. Interest working for you now in a regular savings program is much better than having interest work against you in the future in the form of education loans. Use our college savings calculator to determine how much you should be saving for college on a regular basis.

Personal Information

Client Name

Advisor Name

Current Savings and Assumptions

Annual college cost inflation (0% to 10%)

Amount saved so far ($)

Name

Current Age(0 to 30)

College Start Age(0 to 30)

Years Attending(0 to 20)

Annual Amount

Assumptions

Before-tax return (-12% to 12%)

Marginal tax bracket (0% to 75%)

Annual increases (0% to 20%)

Saving For a Child’s College Education

Paying for college is not a one-shot, one-year affair. Parents and grandparents will have to think in terms of four years for a baccalaureate, six years or longer for a graduate or professional degree, and an eternity if they have seven bright students spaced two or three years apart. Since you may be paying college bills for many years to come, it is essential to understand a bit more about the overall college cost environment.

Tuition costs continue to outpace inflation. According to the College Board, average tuition and fees for four-year public colleges have increased at a rate almost three times that of inflation. There are several reasons for the rapid increase in tuition

Faculty salaries must be raised to attract new professors and to keep tenured ones from leaving.

Maintaining old buildings is very expensive.

Colleges must continually update technology to remain competitive.

The number of high school seniors is declining, so fixed costs are spread among fewer paying customers.

How to Begin the College Search

Many people put off planning for their children's educations until the kids are well into their teens. Often, they discover they've waited too long. With a late start, they have little time to accumulate the assets they need, and miss the chance to plan opportunities to maximize available financial aid. Ideally, the best time to begin planning for your children's education is the day you learn you're going to be a parent.

There are many factors to consider when planning for your child's education. These include whether you favor public, private, parochial, or home schooling, and how to pay for education. Many families even plan where to live by choosing which primary and secondary school districts their children will attend. Then there's higher education. College or trade schools?

The Real Cost of College

Junior has just arrived home from the maternity ward, and like the model parent you are, you want to start investing to send the little nipper to Harvard. What should your asset allocation strategy be for this investment goal?

Unless you are wealthy, you will need to generate lots of capital to fund an Ivy League education. Fortunately, you have a fairly generous investment time horizon of 18 years or so. You might well consider placing most of your investment capital in stocks to generate as much growth as possible--keeping in mind that you might have to endure the occasional dip or even a couple of bear market years. If you are concerned about exposing all of your capital to the market, you might want to place a small portion of it -- say 20 percent -- in safer investments such as bonds.

Definitions

Annual college cost inflationThe average annual increase in tuition, fees, books and room and board costs. Historically, this number has run as much as twice the rate of annual inflation.

Amount saved so farThe total amount you have set aside for college education needs.

NameThe name of the person that will be attending college.

Current AgeThe age of the student at the end of the current year.

College Start AgeThe age you/your student will start attending college.

Years AttendingThe number of years you/your student will attend college.

Annual AmountThe total annual cost of college in today’s dollars. Be sure to include tuition, books, fees and room and board.

Before-tax returnThis is the annual compounded rate of return before taxes that you expect from your college investment accounts. Depending upon your saving accounts choices and your risk propensity, this can range significantly.

Marginal tax bracketThis is the tax rate that your college savings accounts will be subject to. If you are investing in a tax-deferred account such as a 529 plan you may want to enter 0% here.

Annual increasesWhen we recommend an annual savings amount that you will need to meet your college goals, this can be a level (0%) or increasing amount. Enter the annual increase that you would like the system to recommend. For example if your salary is increasing at 3% each year and you save the same percentage of your salary each year then you would enter 3% here.

This information may help you analyze your financial needs. It is based on information and assumptions provided by you regarding your goals, expectations and financial situation. The calculations do not infer that the company assumes any fiduciary duties. The calculations provided should not be construed as financial, legal or tax advice. In addition, such information should not be relied upon as the only source of information. This information is supplied from sources we believe to be reliable but we cannot guarantee its accuracy. Hypothetical illustrations may provide historical or current performance information. Past performance does not guarantee nor indicate future results.